Powell Dilemma: Inflation Or Recession?

McAlvany Weekly Commentary

Elizabeth Warren Wants A 75 Basis Point Cut Supercore Inflation Still Running Hot Employment Numbers Point To Stagflation "I think the Sahm rule implies recession. When you get an uptick in employment off of low levels, that move precedes a reversal in trend and therefore potentially greater softening in the labor markets. Yes, there is a softening. The question is, to what degree? I suspect a recession will emerge, but the pressure on wages remains on the upside. If that continues into 2025, inflation might re-emerge as that two-headed hydra only partially mauled by the Fed's best efforts from that rate tightening cycle—the 2022 to 2024 cycle. The second head is raring to get back into the mischief of consumer pain and anxiety." —David McAlvany Kevin: Welcome to the McAlvany Weekly Commentary. I'm Kevin Orrick, along with David McAlvany. Well, David, as I walk around the office, I see you are Mr. Mom this week. Your wife is in Korea. That's got to be interesting. But how are you holding up? I mean, you're driving the kids from here to there, three different directions all the time. Yet, you're still doing what you do here. David: Yeah. It's pretty fascinating to bounce back and forth between dance, fencing, Civil Air Patrol, breakfast, lunch, dinner, checking up on homework. You realize that doing half of the job—there's a difference between doing half and all. It's 100% difference— Kevin: Well, and the truth of the matter is— David: It's 100% difference. Kevin: Yeah. You're doing 90% more. Because let's face it, your wife— David: That is so fair. That is absolutely a more accurate representation. Kevin: So what is she doing there in Korea right now? David: She's part of a global leadership group that looks at various cultural avenues where there needs to be a broader discussion, a more important discussion, a strategic discussion in the arts and education. Her focus is on the arts, and that's in Bangkok the first week. And then she's at another meeting in Singapore next week. So she'll be gone for two weeks, and I will be either more gray-haired or more of a saint or...I don't know. The next two weeks are a process of spiritual discipline, I think, for me. Kevin: My wife asked how it was going, and I said, "Well, I saw the kids there and they were all engrossed in schoolwork." So fortunately, at least there's a little bit of discipline being applied. I didn't see any of the three playing video games. David: No, no. In fact, I had them sit at one end of the banquet table in our office so that I could walk by and monitor with a glance. And so...anyways. Kevin: And check. Well, okay. So this is the week— I've been thinking about it, Dave. Because with what Elizabeth Warren had recommended that Powell cut interest rates 75 basis points, I started thinking about Goldilocks and the Three Bears. But in this case, let me give it a try, Goldi-Powell and the Three Bulls, okay? 75% basis point drop in interest rates— David: Yeah. Not warranted. Not at all- Kevin: At all. Oh, bad dad joke. Okay. But I'm thinking, 75 basis points would be too hot. 25 basis points, they are already playing down as too cold. And I'm wondering if 50 basis points is just right for Goldi-Powell and the Three either Bulls or Bears. It depends on how it goes. David: Yeah. The main event this week is the Fed decision on rates. And this started with the ascent to current levels in January of 2022. And of course we've held those levels since. This would be the first cut in rates in four years. Cuts usually are advised if business activity is rapidly slowing or if unemployment rates are rapidly increasing or if the Fed calls an unscripted audible to save the stock market from excess volatility. We affectionately know that as the Fed put. They'll step in and protect the downside for the leveraged speculator. In this case, business activity is unimpressive but not weak, and unemployment is rising,